March 24, 2023

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Rampant dollar pauses for breath as bears chase stocks

Rampant dollar pauses for breath as bears chase stocks

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HONG KONG (Reuters) – Asian markets tried to stabilize on Tuesday after a few days in which most assets except for the dollar fell, with the dollar slipping slightly and equities stabilizing.

The British pound, which collapsed to a record low of $1.0327 on Monday, recovered to $1.0772. S&P 500 futures rose 0.7% and Europe futures rose 0.6%.

MSCI’s broadest index of Asian stocks outside Japan (MIAPJ0000PUS.) It fell 0.3 percent, the smallest drop in five consecutive sessions of losses, even if it hit a two-year low. Japan’s Nikkei rose 0.5%.

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Analysts were skeptical about the outlook, however, as markets – already nervous about the prospect of US interest rates remaining elevated for much longer – are wary of turmoil in British assets in response to government spending plans.

Britain is planning tax cuts as well as massive energy subsidies, and a lack of confidence in the strategy and its financing hampered gold bonds and the British pound on Friday and again on Monday.

The yield on the five-year US Treasury bond rose by 100 basis points in two trading days.

“(It’s) definitely something unfolding…We may only be at a certain initial stage of seeing how the market absorbs that kind of information,” said Yuting Chao, a macroeconomic analyst at State Street Global Markets.

“Of course the tax cuts plan itself was really aimed at stimulating growth and reducing household burdens, but it raises the question about the implications for monetary policies.”

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After the pound fell, the Bank of England said it would not hesitate to change interest rates and was watching the markets “closely”. Read more

BoE Chief Economist Howe Bell will speak at a session at 1100 GMT and will likely be pressed for more details.

bear land

The fallout from Britain has kept other assets on edge.

The bond sale in Japan pushed yields to the BOJ ceiling and prompted more unscheduled purchases from the central bank in response.

Wall Street plunged deeper into a bear market on Monday, 10-year Treasury yields rose more than 20 basis points to a 12-year high of 3.933% and the dollar was offering to buy.

“There could easily be another downside move where there were no classic signs of market capitulation, such as the VIX hitting the key 40 – although we are getting closer to that,” said Christina Huber, chief strategist at Invesco.

VIX (.VIX)known as Wall Street’s “fear gauge,” hit a three-month high of 32.88 on Monday.

Investors are looking forward to a series of speeches by central bank officials this week, as Fed’s Charles Evans speaks at 0730 GMT on Tuesday.

A slight rise to 104.5 from 103.2 is expected in the US Consumer Confidence later today.

On Tuesday, the dollar index fell 0.2% to 113.71, after earlier touching 114.58, its strongest level since May 2002.

The European single currency was up 0.3% on the day at $0.9636, after hitting a 20-year low the day before.

Heal oil and gold losses. Gold, which hit a two-and-a-half-year low on Monday, rose 0.6 percent to $1,631 an ounce. Oil is up slightly from its lowest since January.

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US crude rose 0.8% to $77.35 a barrel. Brent crude rose to 84.8 dollars a barrel.

Bitcoin broke above $20,000 on Tuesday for the first time in about a week, with the cryptocurrency rebounding, along with other risk-sensitive assets. Read more

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Reporting by Xie Yu; Editing by Edmund Kelman and Muralikumar Anantharaman

Our criteria: Thomson Reuters Trust Principles.